CNE stems losses, pursues acquisition by Boston group
Last week’s news that the bond rating of state’s second largest hospital group, Care New England, had been downgraded because of mounting losses hasn’t thrown a wrench into CNE’s intent to be acquired by HealthCare Partners of Boston, or to sell Memorial Hospital in Pawtucket to Prime Healthcare Foundation of California.
CNE and Partners announced they had signed a letter of intent in April, but as of Tuesday CNE, which operates Kent Hospital in Warwick, has yet to file an application under the state’s Hospital Conversion Act for review by the Department of Health and the Attorney General. A separate application would be required for the sale of Memorial Hospital to Prime, Amy Kempe, spokeswoman for the Attorney General, said Tuesday.
The Fitch rating agency downgrade of CNE bonds from BBB- to BB on Aug. 10 sent a tremor though Warwick where Kent Hospital is one of the city’s largest employers. Losses at CNE are no secret and there were layoffs at Kent earlier this year.
Mayor Scott Avedisian called the hospital “integral to the community.” He said the change in bond rating raises questions and introduces a level of uncertainty over the future of the hospital.
But CNE and Partners continue to work on an acquisition.
In a joint statement released Tuesday by CNE spokesman Jim Beardsworth, they said, “We continue to work closely on very thorough, detailed and important due diligence. While time consuming, this continues to allow for information sharing and a critical exchange of questions and answers that further this process.”
Beardsworth would not elaborate on how long this process might take. Rather, he referred to the statement that goes on to say, “The fact that this effort takes a careful approach, and therefore an extended period of time, should be of no surprise as both parties remain focused and committed to the previously announced affiliation plans. We look forward to sharing updates as they become available.”
Beardsworth also put a positive spin on CNE’s third quarter report that showed a loss of $6.5 million as compared to a loss of $13.9 million for the first quarter and $26 million for the second quarter.
Again in a statement, he said the third quarter represents “a significant improvement of $19.5 million from just three months ago.”
“Additionally, every month since February we have seen progressive improvement in operating income. While we are pleased to be heading in the right direction, we know there is much more work to do for further improvement,” the statement reads.
At the time of the Fitch report, Beardsworth said, “The report also reflects positive change in the state health care landscape including a Medicaid rate increase and the somewhat more flexible cap on commercial payer rates as a barometer for anticipated improved performance. Collectively, the critical work underway across CNE, combined with these important regulatory changes, bodes well for both our immediate and long-term future, prompting Fitch to express optimism for the year ahead, while recognizing the steps we are pursuing are expected to bring about favorable results.”
According to the online Becker’s Hospital CFO Report, the downgrade is a result of several factors, including the health system's continued operating losses, decreased liquidity measures and reduced patient volumes.
“Fitch also acknowledged CNE's feasible debt burden and improved outlook for fiscal year 2018 provided the health system sells Pawtucket, R.I-based Memorial Hospital and merges with Partners,” reads Becker’s statement.
CNE has maintained a close working relationship with Partners HealthCare since 2009 through a clinical affiliation with Brigham and Women’s Hospital (one of the founding members of Partners) in cardiology and vascular, thoracic and colorectal surgery. In addition, there has been a longstanding collaborative and collegial relationship between McLean Hospital (a Partners hospital) and Care New England’s Butler Hospital to provide high-quality behavioral health care and innovative research locally within the Rhode Island community.
At the time of the announcement of the letter of intent, CNE president and CEO Dennis Keefe said he envisions opportunities for cost reductions simply because of the size of the overall organization. In addition he thought through a continuum of care, the effort would be to “root out a lot of waste” and reduce duplication of services.
While the Hospital Conversion Act does not require a public hearing as part of the Attorney General’s review, Kempe said that AG Peter Kilmartin would seek public input. She said a public meeting would be likely, as well as the solicitation of written input.
She was not surprised that the institutions are taking considerable time to submit an application.
“It is a very complex and comprehensive and regulatory process as it should be,” she said.
Both the AG and Health Department would have 90 days to review the CNE and Partner’s application after it has been deemed complete.